Director-General of the UN Industrial Development Organisation (UNIDO) Gerd Müller introduces the organisation’s Industrial Development Report 2022 and explains how the industrial and manufacturing sectors of developing countries, among them Egypt, can recover from the Covid-19 pandemic.
How did the Covid-19 pandemic affect the industrial and manufacturing sectors worldwide?
Industrialisation has been a crucial engine of growth for countries throughout modern history. It is no coincidence that very few countries have successfully transitioned to High Income Country status without a concerted policy focus on industrialisation.
From our data in the UNIDO Industrial Development Report 2022 (IDR 2022), we can see a clear pattern in terms of resilience and recovery from the Covid-19 pandemic: industrialised economies on average suffered output losses of 3.9 per cent, whereas this almost doubles to 7.7 per cent for emerging and developing economies.
In 2020, we witnessed the worst global recession in 70 years. An estimated 255 million full-time jobs have been lost as a result. In terms of sectoral data, we see a clear distinction in the resilience of high and medium-technology sectors and lower-technology sectors. In this respect, high-technology sectors grew significantly more at 7.1 per cent, while low-technology industries faced a subdued recovery, although their growth still represented a substantial acceleration in comparison to pre-pandemic levels.
Higher value-added sectors like chemicals, pharmaceuticals, computers and electronics, electrical equipment, and machinery have grown faster and exhibited greater resilience than lower value-added sectors. In the long term, an industrial policy framework aimed at transitioning to higher value-added sectors is important, as well as job creation, upskilling and training, innovation and entrepreneurship measures, specifically targeting young people and women in particular.
I would certainly encourage readers to go through the UNIDO Industrial Development Report 2022 and to also explore the UNIDO World Manufacturing Production Report, which provides more detailed data on the performance of various industrial sectors globally.
What are the measures that should be taken by developing countries to help their industrial and manufacturing sectors to recover?
There is no “silver bullet” or “one-size-fits-all” solution for the industrial and manufacturing sectors to recover. Each country needs to identify policies that reflect that country’s context, including its resource and skills endowments, priorities, capacities, upskilling potential, priority sectors and its enabling environment.
The UNIDO Industrial Development Report 2022 shows that three important megatrends will shape the post-pandemic landscape, which are digitisation, production rebalancing, and industrial greening. Countries will need to invest in production capabilities in the manufacturing sector to capitalise on the potential of these megatrends. Countries will compensate for the losses caused by the pandemic through innovation. My motto is “progress by innovation”.
Our Building Back Approach needs to place industrial greening, industrial policies promoting social inclusiveness, support for the digitisation of manufacturing, planning for resilience and risk management, and multilateral action at the front and centre. Building Back Better requires new approaches to industrial policies and coordinated action by the international community.
Additionally, industrial capabilities and digitisation supported countries’ resilience during the pandemic. Increased and robust industrial capabilities were found to have reduced the projected loss of output, while digitally advanced firms were found to be better able to mitigate the downside effects of the pandemic on sales, profits, and employment.
How do these considerations apply to Egypt?
UNIDO is assisting with industrial development in Egypt through its Programme for Country Partnership (PCP), a multi-stakeholder framework owned by the government of Egypt and implemented in close cooperation with the private sector and development finance institutions.
The PCP in Egypt is a five-year programme operating within a €172 million framework.
Based on the findings from a diagnostic analysis of the country’s industrial ecosystem, the Egypt PCP focuses on industrial policy and governance, investment promotion, green industry, smart cities and sustainable industrial parks, value chains, and mainstreaming industry in priority industrial sectors, including chemicals, electronics, food, textiles, leather, furniture, and handicrafts. Together with the government of Egypt, we see these as sectors through which Egypt can achieve inclusive and sustainable industrial development in the long run.
How do you see the industrial and manufacturing sectors in Egypt?
In recent years, Egypt has achieved greater trade competitiveness in different sectors, including agriculture, textiles, chemicals, and plastics. Moreover, manufacturing in Egypt has registered some notable achievements in the last decade. In terms of economic contribution, the share of manufacturing has been increasing in three main dimensions: employment, exports, and inflows of foreign direct investment.
The country has yet to achieve its full potential to upgrade its manufacturing sector. The share of manufacturing value-added is still about 15 per cent of GDP and is mostly concentrated in low-tech sectors. There is future potential for Egypt to upgrade its industrial sectors to more high-tech sectors, supported by a high level of readiness for the challenges introduced by the new wave of technological revolution.
Improvement of capabilities and technological intensity is a necessity to fully equip for the future. Additionally, some measures may be considered to address youth unemployment in particular, such as targeted measures aimed at upskilling, training, and harnessing the innovative capacity of young entrepreneurs. Vocational training will be one of my priorities during my term as director-general of UNIDO.
What policies are needed to upgrade the industrial sector?
UNIDO’s Industrial Analytics Platform helps to inform policymakers on potential measures for industrial recovery. From UNIDO’s country data, Egypt is listed in the Lower Middle Income Countries group, and it ranks 64th on UNIDO’s Competitive Industrial Performance Index.
Egypt’s share of manufacturing in total value-added is slightly lower than many emerging economies, as is its share of employment in manufacturing. Moreover, many of Egypt’s most prominent industries are in the lower value-added category or have proven less resilient to dampened growth due to the pandemic.
Over the long term, a concerted policy focused on increasing productivity, competitiveness, and manufacturing value-added may be useful, as well as gradually transitioning to higher-value sectors. This may necessitate measures to establish a more conducive business environment, as well as investments in skills and training, digital transformation at the firm level, improving quality infrastructure and standards, and enhancing innovation ecosystems.
Industrialisation remains a motor of economic growth and diversification, poverty alleviation, and social mobility, even if the nature of industrial development is evolving rapidly. UNIDO is committed to assisting its member states, including Egypt, to achieve inclusive and sustainable industrialisation and the Sustainable Development Agenda through 2030.
*A version of this article appears in print in the 17 February, 2022 edition of Al-Ahram Weekly.